SOURCE OF CAPITAL

Capital

Preferred Common
Debt
Stock Equity

New
Notes Long-Term Retained
Payable Debt Common
Earnings
Stock
 WACC = W r (1- T) + W r + W r
d d p p c s

AMAZON.COM JC PENNEY

𝑀𝑉𝑑 = $38,125,000,000 𝑀𝑉𝑑 = $4,283,000,000

𝑀𝑉𝑐𝑠 =$772,670,622,530 𝑀𝑉𝑐𝑠 =$864,835,550
𝑀𝑉𝑐𝑎𝑝 = 810,795,622,530 𝑀𝑉𝑐𝑎𝑝 = 5,147,835,550
𝑀𝑉𝑑 𝑀𝑉𝑑
Wd = =4.70% Wd = =83%
𝑀𝑉𝑐𝑎𝑝 𝑀𝑉𝑐𝑎𝑝
𝑀𝑉𝑐𝑠 𝑀𝑉𝑐𝑠
Wc = =95.3% Wc = =17%
𝑀𝑉𝑐𝑎𝑝 𝑀𝑉𝑐𝑎𝑝
WprP=0 Beta: 0.78
Beta: 1.72 Eff. Tax Rate: 35.65%

Eff. Tax Rate: 35%

 WACC = W r (1- T) + W r + W r
d d p p c s

AMAZON.COM JC PENNEY

rs = 12.4872% rs = 5.6628%

rd = 4.95%, Baa1, Not on Watch -Senior rd = 4.95%, B3, Not on Watch -Senior Unsecured -
Unsecured - Dom Curr, 01 May 2018. Dom Curr, 08 Mar 2018. Moody’s
Moody’s

WprP=𝟎 , We have authorized 500 WprP =0 , We have authorized 25 million shares of

million shares of $0.01 par value preferred stock; no shares of preferred stock
preferred stock. No preferred stock was were issued and outstanding as of February 3,
outstanding for any period presented. 2018 or January 28, 2017. 10-k 2017
10-k 2017
 COST OF COMMON EQUITY USING CAPM
rM = 7.26%
rs = rFR + (rM – rFR) b rRF= 2.87%
Rp = 4.39%

AMAZON.COM JC PENNEY

Beta = 1.72 Beta = 0.78

rs = rFR + (rM – rFR) b rs = rFR + (rM – rFR) b

rs = 0.0287 + (0.0439) 1.72 rs = 0.0287 + (0.0439) 0.78
rs = 0.1042 = 10.42% rs = 0.0629 = 6.29%
 COST OF COMMON EQUITY BOND-YIELD-
PLUS-RISK-PREMIUM APPROACH

rs = Bond yield + Risk premium(4%)

AMAZON.COM JC PENNEY
rd = 7.45%,
rd = 4.95%,

rs = Bond yield + Risk premium rs = Bond yield + Risk premium

rs = 4.95% + 4% rs = 7.45% + 4%
rs = 8.95% rs = 11.45%
AMAZON.COM
WACC = Wd rd(1- T) + Wp rp + Wc rs

WACC = (0.0470)(0.0495)(1- 0.35) + (0.953) (0.1042)

WACC = 0.100814825 =10.0814%

JC PENNEY
WACC = Wd rd(1- T) + Wp rp + Wc rs

WACC = (0.83)(0.0745)(1- 0.3565) + (0.17) (0.0629)

WACC = 0.050483822 = 5.0483%